Archive for November, 2009

More respects for Senator Clifford Hansen

The Wall Street Journal recently paid tribute to the late Senator Clifford Hansen as “A Soften-Spoken Hero of the Revolution.” See our earlier post on Senator Hansen’s heroic feats in the 1978 capital gains tax cut here and WSJ item here:

Sometimes good public policy is moved forward by quiet men simply doing what’s best for the country.

Last week, Clifford Hansen, the oldest living U.S. Senator, passed away at age 97 in Jackson, Wyoming. A reserved rancher, Hansen was eulogized at a memorial service this week by political science professor Pete Simpson as coming “on the scene like Shane. He did good. He fought for the right. He mounted up again and rode off into the sunset. . . . God willing, we may see him again.”

Mr. Hansen, who grew up on a ranch, first served as governor of Wyoming and then in 1966 was elected to two terms in the U.S. Senate. Most of his Senate career involved parochial concerns about federal mineral rights, but in his last year he helped make economic history.

Mark Bloomfield, head of the American Council for Capital Formation, recalls that in 1978 he was turned down by many leading senators to sponsor the bill cutting capital-gains tax that was the brainchild of the late Rep. Bill Steiger in the House. Senator Hansen, who keenly understood the need for incentives to end the stagflation of the 1970s, stepped forward and said “By Gosh, I will do it.”

Armed with a single note card listing the reasons to cut capital-gains taxes, Hansen was able to corral two dozen Senators as co-sponsors within a few hours. As word spread of the bill’s popularity, it soon had enough Senate cosponsors to represent a clear majority and convince the Carter White House the idea wasn’t worth opposing. A tax reform that once had been considered an impossibility quickly became a reality and helped provide the rocket fuel that propelled the 1980s economic expansion.

“Much of what Cliff Hansen and Bill Steiger worked for is in jeopardy today,” Mr. Bloomfield tells me. “Here’s hoping we take a lesson from what helped us get out of our economic problems in the 1970s and once again consider solutions that may not at first look promising politically but do make the most sense for the economy.”

Does health care reform have anything to do with capital gains taxes? You bet it does!

If you’re an investor that can’t bear to calculate the impact of the mounting price tag of health care reform, here’s some scary math for you.

Under current law, if the President and Congress do nothing, the maximum long-term capital gains tax rate rises from 15 percent to 20 percent in 2011 but there are several ominous signs that point to a more substantial hike in the rate. Now factor in the House-passed 5.4% income surtax as part of the health care reform package, which As the Wall Street Journal recently pointed out, will hike cap gains rated even higher to a top rate of 25.4 percent in 2011–a whopping 69 percent increase!

To make matters even worse, President Obama’s Budget Director Peter Orszag recently floated the idea of applying a Medicare tax to capital gains earned by higher income Americans to help pay for the health care legislation.

If economic and investment recovery wasn’t hard enough, the trifecta of an automatic 15 to 20% KGs tax hike, Speaker Pelosi’s 5.4% income surtax and a potential Medicare tax will hit investors like a hard punch to the gut.